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2008: One of the Worst Years in Fleet History

As a student of fleet management history, I can’t recall a year as tumultuous as 2008. The year started with the Jan. 1 termination of the $1.8 billion merger between GE and PHH and ended with the near bankruptcy of GM and Chrysler.

In between, we witnessed record gasoline prices, which hit $4.11 on July 17, and then we watched prices go into a spectacular freefall, with the nationwide average fuel price hitting $1.61 on Dec. 29. No one has seen this degree of volatility in fuel prices — ever. This battering was accompanied by a one-two punch in the used-vehicle market. High fuel prices caused used-vehicle values to tank for larger, low-fuel economy vehicles. Then the bottom fell out of the construction market, which depressed the sale of used fleet pickups to the secondary market comprised of independent tradesmen. Next, we were hit with a jaw-jarring upper cut as credit became restrictive, making it difficult to fund many used-vehicle buyers, in particular those requiring subprime financing. The lack of credit to both dealers and retail buyers is the key reason for the ongoing downturn in the wholesale market.

By September 2008, the credit gridlock made it more difficult (and expensive) to issue commercial paper and asset-backed commercial paper. Some commercial fleets were unable to order cars in the fourth quarter because their fleet management company was not accepting new-vehicle orders. Layoffs occurred at many corporate fleets and several fleet management companies. Long-time fleet managers had their positions eliminated. Many dealers went out of business due to their inability to get credit for floorplanning and to fund retail buyers, compounded by the decision of some OEMs to reduce the size of their dealer bodies. In October, the Federal Reserve Board invoked emergency powers to create a special fund to support the U.S. commercial paper market by purchasing three-month dollar-denominated commercial paper from eligible issuers.

On top of all this, we had fleet deliveries disrupted by a UAW strike against a Tier One supplier (that went on far longer than anyone anticipated) and a great flood in the Midwest that submerged strategic rail lines, further disrupting fleet deliveries.

If someone had predicted in December 2007 all this would occur in the next 12 months, this sequence of events would have been dismissed as sensationalist fiction. But happen it did. In a few days, 2008 will be behind us, to which I say — good riddance!

Stay tuned for next week’s Market Trends Blog for my prognosis as to what lies ahead in 2009.

Market Trends

While technology is making vehicles safer, last longer, and be more environmentally friendly, it is also making them increasingly complex. As vehicles become more complex, so do all aspects of vehicle repairs.

The recent U.S tax law changes created a problem for employers who use a non-accountable vehicle reimbursement plan. Negative feedback has some companies reconsidering the viability of offering company-provided vehicles to help key employees mitigate the adverse impact of eliminated tax deduction.

A truck’s total cost of ownership (TCO) covers a specific range of expense variables, regardless of the make or model. The four lifecycle categories that influence TCO are fixed costs, operating expenses, incidental costs, and depreciation/resale value. A key factor that drives these lifecycle categories is a vehicle’s service life.

Most in procurement take the position that fleet’s primary responsibility is to buy assets and services, which annually can range from millions to tens of millions of dollars in expenditures. This amount of corporate spend requires it be managed by someone with superb negotiation skills and proven procurement acumen.

If you want to provide added value to your company, you need to view fleet as a business and not simply an aggregation of assets to be managed cost-effectively. The fastest way to improve your bottom line is to increase fleet utilization, which increases the productivity of each individual truck.

Blog: Vocational trucks are susceptible to being targeted for staged accidents, which involves maneuvering an unsuspecting employee driver into an intentional crash in order to make a false insurance claim or to file a lawsuit against the driver’s employer.

While the light-duty market for compressed natural gas vehicles has almost evaporated, new near zero emissions technology and drastic reductions in infrastructure costs have reinvigorated the market for medium- and heavy-duty applications — even for smaller fleets.

A fleet cost reduction program goes straight to the corporate bottom line. If a company operates at a 10% annual net profit margin, reducing annual fleet expenses by $100,000 is the equivalent of generating $1 million in sales. Although fleet managers manage hundreds of thousands to tens of millions of dollars in corporate assets, only half are incentivized to achieve targeted performance goals. I advocate incentivization should be a universal best practice extended to all fleet managers.

I believe volume penetration of fleets by autonomous vehicles will take much longer to occur than what is predicted in today’s optimistic forecasts. Conceptually, autonomous vehicles are technologically feasible, but, as they say, the devil is in the details. One thing is certain, as we trail blaze new ground, so too will we trail blaze new problems.

Corporate mobility management to evolve into multi-level responsibilities for asset lifecycle management, administration of multi-modal mobility services, and deployment of productivity and safety tools to support a mobile workforce in the field.

The key objective of end-user discussions is to match the truck with the fleet application. Once you have completed your discussions, make sure the completed upfit specs have been reviewed and approved by all parties prior to order placement. It is critical to have a documented sign-off to avoid misunderstandings that result in after-the-fact upfitting modifications.

Recently, I conducted a survey of several hundred fleet managers to identify emerging industry trends. One recurrent theme expressed by fleet managers was the concern that fleet costs are starting to experience upward pricing pressures. Here's what they told me.